Governmental Accounting versus National Accounts: Implications of different accounting bases on EU member-States Central Government deficit/surplus

The main purpose of this paper is to assess the implications on the European Union (EU) member-States Central Government deficit/surplus of different accounting basis adopted in Governmental Accounting (GA – microeconomic perspective) and National Accounting (NA – macroeconomic perspective). It analyses the cash to accrual basis adjustments to be made to General Government Sector (GGS) data, when converting from Governmental Accounts to National Accounts. Additionally, it assesses the impact of the accounting basis differences on the Central Government deficit/surplus, one of the macroeconomic indicators that EU member-States are obliged to report in order to accomplish with the Maastricht Treaty convergence criteria. From the conceptual point of view, the paper highlights relevant differences between the two accounting systems (GA and NA), namely regarding accounting principles, such as recognition criteria – cash versus accrual bases. In spite of recent GA reforms trends in the EU member-States, moving from cash to accruals, differences still remain due to the existence, in some countries, of two different accounting bases in GA – accrual basis for financial accounting and modified cash basis for budgetary accounting. This is particularly relevant since the data from GA to NA are based on budgetary reporting. The empirical study focuses on five EU countries – Germany, The Netherlands, Portugal, Spain and The United Kingdom. It develops a comparative analysis gathering countries representative enough of both Continental and Anglo-Saxon European governmental accounting perspectives. Following a qualitative methodology, the research is mostly supported by documental sources, namely Inventories of Sources and Methods disclosed by each of those countries and the respective Excessive Deficit Procedure (EDP) Notifications from April 2008 to October 2010, covering years 2005 to 2009 and Central Government data. It aims (1) to make a comparative analysis of the accounting bases adjustments and the respective accounting treatment and (2) to evaluate the impact of those adjustments on each country’s deficit/surplus. This paper contributes to a better understanding of the accounting basis differences for the convergence process between GA and NA, allowing for more reliable informative outputs to be reached for both micro and macro perspectives.